S3 ESSENTIAL INVESTMENT PORTFOLIO DESIGN
1 + 3 X 3
ETFs or Exchange Traded Funds have been around since the 90s, but access to digital technology and investing platforms has led to tremendous growth in the choices they create for a retail as well as institutional investors. There are ETFs for almost anything, asset classes, markets, bonds, commodities, Bitcoin, even individual stocks. They are generally low-cost as compared to mutual funds or unit trusts which many of us would be familiar with. So they are the natural choice as an investment vehicle.
One cannot simply start of in investing with learning to time the market and going into trading and trend following or understanding more complex approaches involving puts, calls and LEAPs with options trading, or even using technicals and/or fundamentals analysis to carry out stock picking. All of these approaches involve significant level of timing or luck or both. In fact, timing the market does require luck. Almost every successful trader or investor has written about their early stories of failed traded and investments and give credit to not only their abilities and hard work, but also an element of luck.
As the investing legends have already said, do not time the market but put time into the market. Hence, we look at Macro ETFs which have significant time and history on their side. These include stable and growing markets like US (mostly), India, Japan, fast-moving sectors like technology (mostly), health care and consumer discretionary for growth, and corporate and high yield corporate bonds and government bonds for income.
The focus is on reasonable growth with reasonable risk, hence the focus on equities and high yield corporate bonds. Reasonable growth focus is also needed to preserve capital and reduce unnecessary risk, by incorporating income generating assets i.e. bonds including high yield bonds, which are largely ignored by most retail investors.
So, what is this 1+3X3 then?
1 = Cash reserves.
3X3 = 9 ETFs across growth and income.
Cash reserves come first, because they are needed for emergency expenses, to ride out market downturns, and to take advantage of those downturns by investing during them.
3X3 ETFs include 3 Equity ETFs, 3 ETFs across Corporate and High Yield Corporate Bonds, and 3 ETFs across government bonds with varying durations.
The what, why, and how of these ETFs is detailed in this book by S. B. Stone, soon to be launched on Amazon.
